Luxury residence sales hurt |as banks tighten lending

Real Estate July 27, 2015 01:00

By Somluck Srimalee

The Nation

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Banks have tightened up on extending home loans to owners of small and medium enterprises as a result the rejection rate for luxury residences increased to 30 per cent in the second quarter of this year.

Pumipat Sinacharoen, chief people excellence officer at AP (Thailand) Plc, said last week that the rejection rate for luxury residences is still climbing after commercial banks began restricting mortgage loans early this year.

Normally, banks will closely scrutinise home loan applications from the lower income market of residences priced under Bt2 million, but now they are becoming cautious in lending to buyers of residences priced over Bt10 million, especially those who own an SME, he said.

"Up to 30 per cent of our customers who buy our luxury residences priced at over Bt10 million will get approval for a loan that’s lower than what they need.

"For example, they may need a loan of about 90 per cent of residential value but the bank approves only 60 per cent of residential value. This forces them to cancel their purchase because they don’t have enough cash to pay the rest of the residential value," he said.

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The tougher screening of both low-income and SME borrowers has caused the average mortgage loan rejection rate to increase from 25 per cent last year to 30 per cent in the first half of this year, said Prasert Taadullayasatit, president of the Thai Condominium Association and managing director for condominiums at Pruksa Real Estate.

In the first half, some developers launched luxury condo projects worth more than Bt100 billion to serve the growth in demand, but now he sees some of the demand is from speculators rather than buyers of units for occupation or investors in units for rental income.

"We will not see an impact on luxury condos at this time because most of them will transfer to customers from 2017-18, but this is a negative sign for the high-end condo market at this time," he said.

Luxury condos that are scheduled to be transferred to customers this year will face mortgage loan rejections if they were not paid for in cash or they need a mortgage loan that is over what banks are willing to approve, he said.